THE WAY WE LIVE NOW: 6-09-02: THE ETHICIST

THE WAY WE LIVE NOW: 6-09-02: THE ETHICIST; Cash Matters

By Randy Cohen

Published: June 9, 2002

A self-employed person provides a service for me. If I pay cash, he gives me a 10 percent discount. He has confided that this cash will not be reported to the government. Over the course of a year, the discount saves me several hundred dollars. I know this is a long-held practice in many businesses, but is it ethical for me and the person I hire? B.H., N.H.

If you know this person is a tax cheat -- and you do -- it is unethical to abet his deceit and profit by doing so. Were you uncertain what this miscreant were up to, the situation would be murkier: he might simply find cash more convenient, or enjoy wallowing in big piles of the stuff like Scrooge McDuck. But there's insufficient murk in this situation to justify your playing along.

Ethics aside, there are other compelling reasons to shun this chicanery. As a legal matter, one accountant I spoke to said, a business owner generally has ''no tax-code-related requirement to report his supplier's illegal activities, unless he is an attorney or possibly a C.P.A. or other tax professional.'' However, you may have an obligation to issue this person a 1099, which will certainly call attention to your transactions and may get this cash fancier into trouble with the I.R.S.

Because I dislike winter driving, I decided not to use a pair of expensive tickets for a dance event when a blizzard was forecast. Instead, I offered them to friends who live near the auditorium and whose car has four-wheel drive. When they arrived at the auditorium, however, the event had been canceled. Who gets the refund? Anonymous, Madison, Wis.

The refund is yours. Ordinarily when you give someone a gift, it's hers to do with as she pleases -- keep it, sell it, store it in an attic. (This last is easier to do with an ugly vase, say, than with a dance company. Dancers grow cranky in captivity.) In this case, however, you never had a chance to give anyone anything.

The intended gift, a performance, dissolved into nonexistence.

Had you ordered your friends that ugly vase instead, and the manufacturer then announced that it had been discontinued, the charge would be canceled. You might subsequently choose to give your friends some other present -- an ugly lamp? -- but you would not be obliged to hand over to them the cash equivalent. In this case, the physical tickets are simply proof that you ordered seats for what turned out to be a chimera. Your friends should return them to you so you can get your money back.

My friend and I met for dinner at a Japanese restaurant. The tab was $60, and we split it, paying $30 each. My friend told me that he'd expense his own share of the meal. (He gets reimbursed up to $25 by his boss.) Thus, he paid $5 for dinner, while I paid $30. Was this fair, or should we have divided the $25 reimbursement, thereby paying $17.50 each? Gregg Reed, N.Y.

You are each responsible for half of the bill. How your friend got the money to cover his end is beside the point, whether he earned it as a job perk, inherited it from a long-lost relative or got it by dancing on the sushi bar and encouraging patrons to toss coins (assuming he didn't run afoul of the health code or the estate of Bob Fosse). Further, you could argue that it is his employer's understanding that this reimbursement is to feed himself, not his pal. (And it is the other patrons' understanding that there will be no dancing near the raw fish.)